TAXguide 11/18: the settlements legislation
In TAXguide 11/18 Sarah Godfrey explores the settlements legislation and what it means for the family business, the Arctic Systems case and HMRC’s views of the rules as they currently apply.
The effect of the settlements anti-avoidance legislation is to render ineffective certain settlements of income which result in a tax saving. Where the rules are in point, any income arising will be deemed to be that of the settlor for tax purposes.
Therefore, if a settlor has sought to give away income in a manner which falls within the settlements legislation, HMRC will treat the income as if it was still the settlor's and tax him or her accordingly. These rules will be particularly relevant where the recipient of the income is either a non-taxpayer or a lower rate taxpayer than the settlor. The rules only apply to trusts set up by the settlor during his lifetime.